Atlassian (TEAM +2.65%) is an enterprise software powerhouse. It created products like Jira and Confluence, which are used by more than 300,000 businesses to boost their productivity.
Atlassian is unlocking a new phase of growth thanks to artificial intelligence (AI), which is a key reason its stock has more than doubled since the middle of last year. However, it's still trading 33% below its all-time high set during the tech frenzy in 2021, so it's not too late for investors to consider adding it to their portfolio.
In fact, The Wall Street Journal tracks 32 analysts who cover Atlassian stock, and the majority have assigned it the highest possible buy rating with not a single analyst recommending to sell. Should investors buy into the Street's optimism?
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Atlassian is heavily focused on AI
Jira and Confluence are designed to make workplace collaboration easy, especially in the era of remote work. Jira helps software developers track bugs, assign workloads, and deliver the final product to customers. However, it's also used by non-technical workers to manage workflows of all kinds. Confluence, on the other hand, is like a digital meeting place where employees from all departments can share ideas and post important information.
Atlassian Intelligence introduces over 50 AI-powered features to Jira and Confluence to enhance their capabilities. It includes powerful writing tools to help users instantly summarize and generate text, and in Jira specifically, it can even identify things like bugs and software dependencies to save developers time. Overall, Atlassian says workers who use Atlassian Intelligence are saving an average of 45 minutes per week.
The company also launched a separate AI product called Rovo recently, which it describes as a virtual teammate. It can access all of an organization's data not only within Atlassian, but also across third-party applications so workers can immediately find the information they need using its chatbot interface. Businesses can also build custom Rovo agents for specialized jobs, whether it's to automate repetitive tasks or to manage projects by tracking milestones and identifying risks.
During Atlassian's fiscal 2025 second quarter (ended Dec. 31), its AI tools had more than 1 million monthly active users. The number of AI interactions also soared by 25-fold compared to the year-ago period, which means those users aren't just testing these new products, but actively engaging with them each day.
NASDAQ: TEAM
Key Data Points
Steady growth, with an improving bottom line
Atlassian generated a record $1.28 billion in total revenue during the second quarter, which was a 21% increase from the year-ago period. The result was driven by cloud revenue and data center revenue, which grew by 30% and 32%, respectively.
Cloud customers are those who deploy software like Jira by using Atlassian's servers. It's the preferred method, so this segment accounted for $847 million of Atlassian's total revenue during Q2. Data center customers are typically larger organizations that have their own servers, or rent centralized capacity from providers like Microsoft Azure. This segment represented $362 million of Atlassian's total Q2 revenue.
There is also evidence AI is driving some of Atlassian's growth. Atlassian Intelligence contributed to a 40% increase in sales of Premium and Enterprise plans, which are the two most expensive subscriptions offered by the company (AI features aren't available in the cheaper tiers).
Atlassian's strong top-line growth also translated into improvements at the bottom line. The company still lost $38.2 million during Q2, but that was a 54% reduction from the $84.4 million net loss it delivered in the year-ago period. It was a good result considering Atlassian's research and development spending soared by almost 27% to $680 million (its largest operating expense by far). Building new AI products isn't cheap!
On a non-GAAP basis, which excludes one-off and non-cash expenses like stock-based compensation, Atlassian was actually profitable during Q2 to the tune of $255.6 million (a year-over-year increase of nearly 35%).
Wall Street is bullish on Atlassian stock
The Wall Street Journal tracks 32 analysts covering Atlassian stock, and 17 have assigned it the highest possible buy rating. Five others are in the overweight (bullish) camp, and 10 recommend holding. No analysts recommend selling.
Although analysts are clearly bullish overall, their consensus price target of $353.76 represents a potential upside of just 15% over the next 12 to 18 months. The Street-high target of $420 is a little more juicy because it implies a potential upside of 37%. But this stock is probably best for longer-term investors, because holding it for three to five years will give the AI story sufficient time to play out, which could drive much better returns.
The stock does look like a good value for investors interested in buying it today. It trades at a price-to-sales (P/S) ratio of 16.6, which is a 15% discount to its long-term average of 19.7 dating back to when Atlassian went public in 2015:
TEAM PS Ratio data by YCharts
Atlassian has an enormous addressable market worth $67 billion, which is growing by 13% annually. Based on its Q2 result, the company's revenue could top $5 billion over the next 12 months, so it has barely scratched the surface of that opportunity. It's another reason long-term investors could do very well in this stock.
